Topic: thailand

Mobilizing Climate Investment: The Role of International Climate Finance in Creating Readiness for Scaled-Up, Low-Carbon Energy

Sarah Parsons — Fri, 22 Feb 2013 15:20:51 -0500

Executive Summary

Between now and 2050, developing countries need an estimated $531 billion per year of additional investment in energy supply and demand technologies in order to limit global temperature rise to 2° C above pre-industrial levels. To achieve this scale of investment, developing country governments and custodians of international public finance will need to deploy limited public finance in ways that leverage an unprecedented volume of private sector investment. Despite growing global investment in low-carbon energy and falling costs, it will be difficult to achieve the scale and urgency of investments needed without the appropriate policy, institutional, industry, and financial conditions. Governments and their international partners need to undertake “readiness” activities designed to put in place the conditions that attract scaled-up investment and enable a transformation toward low-carbon energy development pathways.

Drawing on six developing country case studies, this report identifies a set of key lessons and insights for readiness. The report develops a framework to identify and prioritize readiness activities that will require public financial support to create the conditions necessary to scale up investments in renewable energy and energy efficiency (collectively referred to as low-carbon energy). The report discusses the implications of the findings for international climate finance and draws a number of recommendations for the Green Climate Fund (GCF). It targets international public funds and institutions looking to accelerate investment in low-carbon energy, as well as developing country governments looking to identify and prioritize activities for funding.

Enabling conditions for scaling up investment

We identify a number of policy and institutional, industry, and financial sector conditions that can attract scaled-up public and private investment in low-carbon energy. Policy and institutional conditions include plans and targets for low-carbon energy, institutional capacity to effectively implement climate change and energy policies, laws supporting investment in low-carbon energy, and regulatory and fiscal instruments to implement laws. Industry conditions include the capacity of developers to prepare bankable projects, information on renewable resource availability or options to conserve energy, engineering capacity, and the presence of a support industry and enabling infrastructure. Financial conditions include a stable financial sector with the capacity and range of financial products needed to support low-carbon energy.

In six case studies, we analyze the role that enabling activities have played in promoting scaled up investment in low-carbon energy, and the role that international public finance has played in supporting such activities. These case studies examine energy efficiency in Thailand, wind power in South Africa, solar water heaters in Tunisia, geothermal power in Indonesia, wind power in Mexico, and energy efficiency in India. Taken together, the case studies suggest two overarching determinants of success in scaling up investment: government leadership and effective responses to pricing distortions. When government leadership is strong, a commitment to policy and institutional reform and implementation of stated goals usually follows. This in turn strengthens the investment climate and increases investor confidence. In cases where market failures severely distort the market in favor of carbon-intensive energy sources, it has been more difficult to create the conditions that attract investment in low-carbon energy.

Lessons learned for the design of readiness activities

The case studies also reveal a number of lessons about the design of readiness activities and the role of international partners in supporting them.

Small amounts of long-term funding for enabling activities can help scale up investment

In each case study, small investments in enabling activities—from several hundred thousand dollars to several million dollars—helped pave the way for scaled up private and public investments by supporting the creation of conducive policies and market conditions. International support has been most effective when sustained over five or more years. Technical support can also be more effective if international advisors are integrated into national institutions and report to national, rather than international, authorities.

International support is likely to be more effective if it identifies and targets a few critical barriers to investment. In countries with comparatively few enabling conditions for investment, attempts to simultaneously surmount all investment barriers may result in resources being spread too thin to achieve a significant impact. Chapter 4 presents a framework that can aid governments and their international partners in identifying activities to support.

Strengthening the enabling environment should not end when investment begins. In each case study, readiness activities and larger investment took place simultaneously. Even in cases where the investment climate was already strong, there was still scope for additional enabling activities to address specific gaps.

Integrated, inclusive planning processes and policy and institutional reform are key to attracting investment

The integration of low-carbon energy into a broader development agenda can enhance coordination and alignment between different sectors of the economy. Civil society and private sector actors can bring valuable expertise and experience to the planning process, and play important roles in ensuring that low-carbon energy policies and plans are realistic, robust, and tailored to the needs of the country. International support should be aligned with national plans and priorities for effective and sustained outcomes, and should be flexible enough to respond in a timely manner to evolving priorities.

Changes to the policy and regulatory environment proved crucial to attracting investment on a significant scale in the case studies. International support for the design of policies is likely to be effective only if it is demand-driven and not seen as infringing on national sovereignty. Countries that have set up their own financial mechanism to support low-carbon energy projects are well positioned to implement their objectives effectively and independently, thereby reducing their reliance on international partners to finance their low-carbon energy needs.

Having the appropriate institutions in place to develop, implement, and regulate policy reforms—and empowering them with the mandate and resources to carry out their functions effectively—helped ensure that policies were coherent and consistent, which increased investor confidence.

In key institutions, strengthening the capacity of staff and management to carry out their functions is an important readiness activity that often requires international funding support. The case studies suggest that capacity-building support is most effective when carefully targeted to address particular skills gaps.

Tackling information barriers and strengthening industry and financial sector capacity can unlock investment

Public support for broad-scale renewable resource assessments or exploration can provide information on resource availability that is key to attracting investor interest. Similarly, measures to familiarize industry and other actors with low-carbon energy options—such as training centers, awareness campaigns, and seminars and workshops that bring together stakeholders—can strengthen industry knowledge of and capacity to implement renewable energy projects, and raise awareness of the potential cost savings from energy efficiency.

International support plays an important role in facilitating learning and demonstrating new financing models for renewable energy, as well as strengthening industry’s capacity to develop and implement low-carbon energy projects. In some cases, international support to strengthen the capacity of small and medium enterprises (SMEs) and improve their access to financing for low-carbon energy projects has helped unlock investment by this sector of the market.

Financial institutions can play a key role in opening the market for low-carbon energy technologies. However, some financial institutions lack knowledge of and experience with these technologies. Strengthening the capacity of financial institutions to support renewable energy and energy efficiency projects, including through pilot financing programs, has been important in scaling up domestic sources of finance for low-carbon energy in several cases. In some cases, the high risk—real or perceived—of investing in low-carbon technologies without a proven track record in the country has deterred domestic financial institutions. Mechanisms that carefully allocate risks to those best placed to manage them can help attract financing from domestic banks and other financial institutions.

A framework for guiding readiness support for low-carbon energy investments

Building on the experiences of the six case studies, we propose a framework to guide governments and their international partners in determining how best to provide readiness support to countries with low-carbon energy sectors in different stages of development. The framework describes some of the activities required to strengthen the enabling policy and institutional environment for investment. In the early stages of development, these include support for assessing energy options, engaging stakeholders in the energy planning process, capacity building for government agencies and civil society, technical support for developing plans and strategies, and outreach activities. In later stages, activities include support for designing and implementing regulations and fiscal instruments, and targeted capacity building for government agencies, including local governments.

The proposed framework also describes some of the activities needed to strengthen the enabling industry and financial conditions for investment. In early stages of development, these include renewable resource assessments and energy conservation awareness campaigns, capacity building for project developers and financial institutions, support for technology transfer and localization, feasibility studies and environmental and social impact assessments, and support for financial sector reform. At later stages, activities include strengthening engineering capacity for low-carbon energy projects, supporting ancillary industries (such as upgrading grid infrastructure), and supporting financial institutions to assess and finance low-carbon energy projects.

Recommendations for the Green Climate Fund

The six case studies illustrate different approaches that various international partners have used to support readiness activities. The lessons learned are intended to inform the recently established GCF as it attempts to identify how best to support a paradigm shift toward low-emission and climate-resilient development pathways. Although the GFC’s detailed operational modalities are not yet defined, it could take a number of approaches to support readiness. These include supporting readiness directly or partnering with existing institutions; establishing distinct channels and allocations for readiness or integrating enabling activities into existing channels and allocations; and supporting readiness through the private sector facility.

A Seven-Country Assessment of National Capacities to Track Forest Carbon Dioxide Emissions and Removal

Sarah Parsons — Tue, 11 Sep 2012 11:16:54 -0400

Summary

Forest carbon monitoring is critical to evaluating whether policies aiming to reduce carbon dioxide emissions from forest change are achieving their goals. The objective of this brief is to highlight the technical capacity needs for implementing national systems for forest carbon monitoring. This paper assesses the technical capacity in seven countries—Brazil, Colombia, Ethiopia, India, Indonesia, South Africa, and Thailand—for monitoring forests, forest change, and associated carbon dioxide emissions and removals. The results can be used by national agencies and the international community, including donor agencies and non-governmental organizations, to identify priorities for capacity-building and funding.

Based on findings from the assessment, the seven countries would benefit from the following:

Establishing processes to regularly and more frequently update data to enable understanding of trends in forest change.
Ensuring consistency of monitoring methods to allow comparison of data and interpretation of change over time.
Improving spatial resolution of forest monitoring where important drivers of forest change are difficult to detect with mid-resolution satellite imagery.
Establishing or updating national forest inventories regularly to enable accurate estimates of carbon dioxide emissions/removals.
Developing protocols and training programs to guide and harmonize sub-national data collection.
Strengthening data management and sharing among government agencies to enable integration of forest change information with other land use, permitting and tenure data.

Measurement and Performance Tracking in Developing Countries

Samah Elsayed — Mon, 13 Jun 2011 15:31:09 -0400

Developing countries face the challenge of meeting development goals while at the same time reducing their greenhouse gas (GHG) emissions in order to address climate change. For these efforts to succeed, effective systems are needed to manage greenhouse gases and related emissions reduction activities.

To that end, the World Resources Institute (WRI) is working through the Measurement and Performance Tracking (MAPT) project to build national capacities in developing countries to measure GHG emissions and track performance toward low-carbon development goals. Lessons learned are also being shared with international audiences in order to replicate successes and inform the design of relevant rules within the United Nations Framework Convention on Climate Change (UNFCCC).

WRI is partnering with a broad range of relevant stakeholders within the six MAPT countries, including government agencies, business, and civil society organizations. WRI’s engagement within each country is prioritized according to national capacity needs, which have been identified through scoping assessments conducted with in-country partners.

MAPT is a four-year project funded primarily by the International Climate Initiative of the German Federal Ministry for the Environment, Nature Conservation, and Nuclear Safety (BMU) and being carried out in partnership with key stakeholders in Brazil, Colombia, Ethiopia, India, South Africa, and Thailand.

For more information on the MAPT project contact the project manager, Kelly Levin at KLevin@wri.org.

To learn more about the MAPT project visit:
Tools and Outputs
Countries

You can also read more about the individual components that make up the work:
Institutions
National GHG Emissions Inventories
Mitigation Accounting
Civil Society Policy Implementation
Industry
Forestry and Land Use
International

PRESS RELEASE: New Paper Lays Out Smart Policies for Renewable Energy Growth

Lauren Zelin — Tue, 24 May 2011 14:15:18 -0400

Offers six principles of smart energy policy for developing countries

A recent report from the Intergovernmental Panel on Climate Change (IPCC) said that 77 percent of the world’s energy could come from renewable sources by 2050, as long as governments adopt the right policies. A new working paper, Grounding Green Power, outlines the key components of smart renewable energy policy in developing countries, focusing on the electrical power sector. The paper, from the World Resources Institute (WRI) and the German Marshall Fund of the United States (GMF), in cooperation with the Heinrich Böll Foundation, suggests priorities for international donors looking to make the most efficient investments in clean energy.

“Helping to build a wind farm is a good thing, but when donors support policies that bring down the cost of renewables, they lay the groundwork for many more wind farms and exponentially more renewable energy projects,” said Lutz Weischer, lead author of the paper and Research Analyst at WRI. “Smart renewable energy policies can drive private investment and create the right environment necessary for long-term growth.”

Grounding Green Power identifies the key components of smart energy policies and draws conclusions from on-the-ground experiences in 12 developing countries. The recommendations were based on a workshop with representatives from Brazil, India, Indonesia, Kenya, Mexico, Morocco, Mozambique, South Africa, Sri Lanka, the Philippines, Tanzania and Thailand.

Thomas Kleine-Brockhoff, GMF Senior Director for Policy Programs said, “No two countries are the same, but by convening actors from so many developing countries we have been able to discern best practices that apply across countries. This paper should help the international community as it seeks simultaneously to achieve the goals of development cooperation and reduce the risk of climate change.”

The working paper outlines six principles of smart renewable energy policy that are necessary to achieve transformative deployment at scale, based on the 12 international case studies. According to the authors, a smart renewable energy policy should be:

Comprehensive – strives to create an enabling environment including power sector regulations, investment and financing conditions, suitable electric grid infrastructure, and technical capacity.
Based on clearly defined objectives – includes technology deployment, energy access and economic development goals, in addition to added power generation.
Welcoming to private investment – leverages private investment by promoting attractive and predictable market conditions.
Cost-effective – calls for careful policy decisions that avoid over subsidization of renewables, while removing incentives for fossil fuels.
Supportive of innovation – improves performance, reliability, safety and cost of renewable technologies, to take innovation beyond the lab.
Transparent, accountable and participatory – takes into account the principles of good electricity sector governance, including transparency, accountability, and stakeholder participation.

The paper is intended for audiences including bilateral and multilateral development agencies (the World Bank, bilateral financial institutions, and export-credit agencies); existing multilateral climate funds (Global Environmental Facility and Clean Technology Fund); as well as the new Green Climate Fund; and other international organizations like the International Renewable Energy Agency.

The full working paper is available here.

“Grounding Green Power; Bottom-up perspectives on smart renewable energy policy” was co-authored by Lutz Weischer, Davida Wood, Athena Ballesteros, Xing Fu-Bertaux, of the World Resources Institute and published by the German Marshall Fund of the United States in cooperation with the Heinrich Boell Foundation and WRI.

# #

The World Resources Institute (WRI) is a global environmental think tank that goes beyond research to put ideas into action. We work with governments, companies, and civil society to build solutions to urgent environmental challenges. (www.wri.org)

The German Marshall Fund of the United States (GMF) is a non-partisan American public policy and grantmaking institution dedicated to promoting better understanding and cooperation between North America and Europe on transatlantic and global issues. GMF does this by supporting individuals and institutions working in the transatlantic sphere, by convening leaders and members of the policy and business communities, by contributing research and analysis on transatlantic topics, and by providing exchange opportunities to foster renewed commitment to the transatlantic relationship. In addition, GMF supports a number of initiatives to strengthen democracies. Founded in 1972 through a gift from Germany as a permanent memorial to Marshall Plan assistance, GMF maintains a strong presence on both sides of the Atlantic. In addition to its headquarters in Washington, DC, GMF has six offices in Europe: Berlin, Paris, Brussels, Belgrade, Ankara, and Bucharest. GMF also has smaller representations in Bratislava, Turin, and Stockholm. (www.gmfus.org/)

The Heinrich Böll Foundation is affiliated with the German Green Party. As part of the Green political movement it has developed worldwide as a response to the traditional politics of socialism, liberalism, and conservatism. The main tenets are ecology and sustainability, democracy and human rights, self-determination and justice. HBF places particular emphasis on gender democracy, meaning social emancipation and equal rights for women and men. As a green think tank and an international policy network, the Heinrich Böll Foundation is active in ecology, democracy and human rights worldwide with 30 offices across the globe. (www.boell.de/service/home.html)

Grounding Green Power: Bottom-Up Perspectives on Smart Renewable Energy Policy in Developing Countries

Maggie Barron — Tue, 24 May 2011 12:51:13 -0400

Watch the summary interview with Lead Author Lutz Weischer

This paper was published by the German Marshall Fund of the United States in cooperation with the Heinrich Boell Foundation and the World Resources Institute.

Developing Countries in the Renewable Energy Transformation

In order to meet the intensifying climate challenge, the global energy system must undergo a fundamental transformation, with a rapid increase of renewable energy worldwide. Developing countries are at the forefront of this challenge, since they are expected to add around 80 percent of all new electric generation capacity worldwide in the next two decades.

The deployment of energy from renewable sources is accelerating in developing countries, and already accounts for a higher percentage of electricity generation than in the developed world. In 2008, non-OECD nations generated 21 percent of their electricity from renewable sources including large-scale hydroelectric power (compared with 17 percent in OECD countries), according to International Energy Agency (IEA) statistics. However, this figure must more than double by 2035, to 46 percent, in order to meet the IEA’s “450 scenario,” which outlines a climate friendly pathway for meeting global energy demands.

Transforming the energy system on this scale will require significantly increased support from developed countries, channeled through both bilateral assistance and multilateral institutions, as well as philanthropic initiatives. Our conclusions, derived from a series of case studies and a comprehensive review of existing literature, suggest that donors should deploy financial support more effectively by moving beyond a project-by-project approach to one that creates the right environment for investments in scaled-up, nationwide deployment.

This working paper seeks to assist in this process, by identifying key components of smart renewable energy policy in developing countries, focusing on the power sector. It also provides recommendations for maximizing the effectiveness of international support for deployment of renewable energies, drawn from these on-the-ground experiences in developing countries.

About this Working Paper

Chapter 1 introduces the approach and methodology taken in this paper and describes the key concepts we address. The second chapter discusses what developing countries are already doing to deploy renewable energy sources, and how they can be supported in scaling up such efforts. It also introduces a set of principles of smart renewable energy policy to propel such a transformation, developed by the World Resources Institute. These are based on insights drawn from case studies of existing renewable energy policies in 12 countries in Africa, Asia, and Latin America as well as from existing literature.

The following five chapters each examine one key element of smart renewable energy policy, discuss lessons learned, and identify needs for international support. These cover planning and strategy (Chapter 3), well-designed generation-based incentives (Chapter 4), an enabling policy and regulatory framework (Chapter 5), attractive financing conditions (Chapter 6), and the necessary technical environment (Chapter 7). Our findings and recommendations are summarized in Chapter 8.

Principles of Smart Renewable Energy Policy

We define smart renewable energy policy as the set of rules, regulations, and government actions that lead to an increased share of renewables in total electricity consumption in line with a country’s development objectives. Smart renewable energy policy encourages private investment, achieves its objectives in a cost-effective way, promotes continuous innovation, and is designed through transparent, accountable, and participatory processes.

Presentation

Download Slides (PDF, 839 Kb)

PRESS RELEASE: 75% of World’s Coral Reefs Currently Under Threat, New Analysis Finds

Michael Oko — Wed, 23 Feb 2011 21:55:53 -0500

“Reefs at Risk Revisited” report presents comprehensive analysis of threats to coral reefs

A new comprehensive analysis finds that 75 percent of the world’s coral reefs are currently threatened by local and global pressures. For the first time, the analysis includes threats from climate change, including warming seas and rising ocean acidification. The report shows that local pressures— such as overfishing, coastal development, and pollution— pose the most immediate and direct risks, threatening more than 60 percent of coral reefs today.

“Reefs at Risk Revisited,” the most detailed assessment of threats to coral reefs ever undertaken, is being released by the World Resources Institute with the Nature Conservancy, the WorldFish Center, the International Coral Reef Action Network, Global Coral Reef Monitoring Network, and the UNEP-World Conservation Monitoring Center, along with a network of more than 25 organizations. Launch activities are taking place in Washington, D.C., London, Malaysia, Indonesia, the Caribbean, Australia, and other locations around the world.

“This report serves as a wake-up call for policy-makers, business leaders, ocean managers, and others about the urgent need for greater protection for coral reefs,” said Dr. Jane Lubchenco, under secretary of commerce for oceans and atmosphere and NOAA administrator. “As the report makes clear, local and global threats, including climate change, are already having significant impacts on coral reefs, putting the future of these beautiful and valuable ecosystems at risk.”

Local pressures – especially overfishing and destructive fishing – are causing many reefs to be degraded. Global pressures are leading to coral bleaching from rising sea temperatures and increasing ocean acidification from carbon dioxide pollution. According to the new analysis, if left unchecked, more than 90 percent of reefs will be threatened by 2030 and nearly all reefs will be at risk by 2050.

“Coral reefs are valuable resources for millions of people worldwide. Despite the dire situation for many reefs, there is reason for hope,” said Lauretta Burke, senior associate at WRI and a lead author of the report. “Reefs are resilient, and by reducing the local pressures we can buy time as we find global solutions to preserve reefs for future generations.”

The report includes multiple recommendations to better protect and manage reefs, including through marine protected areas. The analysis shows that more than one-quarter of reefs are already encompassed in a range of parks and reserves, more than any other marine habitat. However, only six percent of reefs are in protected areas that are effectively managed.

“Well managed marine protected areas are one of the best tools to safeguard reefs,” said Mark Spalding, senior marine scientist at the Nature Conservancy and a lead author of the report. “At their core, reefs are about people as well as nature: ensuring stable food supplies, promoting recovery from coral bleaching, and acting as a magnet for tourist dollars. We need apply the knowledge we have to shore up existing protected areas, as well as to designate new sites where threats are highest, such as the populous hearts of the Caribbean, Southeast Asia, East Africa and the Middle East.”

Reefs offer multiple benefits to people and the economy – providing food, sustaining livelihoods, supporting tourism, protecting coasts, and even helping to prevent disease. According the report, more than 275 million people live in the direct vicinity (30 km/18 miles) of coral reefs. In more than 100 countries and territories, coral reefs protect 150,000 km (over 93,000 miles) of shorelines, helping defend coastal communities and infrastructure against storms and erosion.

For the first time, the report identifies the 27 nations most socially and economically vulnerable to coral reef degradation and loss. Among these, the nine most vulnerable countries are: Haiti, Grenada, Philippines, Comoros, Vanuatu, Tanzania, Kiribati, Fiji, and Indonesia.

“The people at greatest risk are those who depend heavily on threatened reefs, and who have limited capacity to adapt to the loss of the valuable resources and services reefs provide,” said Allison Perry, project scientist at the WorldFish Center and a lead author. “For highly vulnerable nations – including many island nations – there is a pressing need for development efforts to reduce dependence on reefs and build adaptive capacity, in addition to protecting reefs from threats.”

The report is an update of “Reefs at Risk,” released by WRI in 1998, which served as an important resource for policymakers to understand and address the threats of reefs. The new report uses the latest data and satellite information to map coral reefs— including a reef map with a resolution 64 times higher than the original report.

“Through new technology and improved data, this study provides valuable tools and information for decision makers from national leaders to local marine managers,” said Katie Reytar, research associate at WRI and a lead author. “In order to maximize the benefits of these tools, we need policymakers to commit to greater action to address the growing threats to coral reefs.”

Find out more at: www.wri.org/reefs

# # # #

The World Resources Institute (WRI) is a global environmental think tank that goes beyond research to put ideas into action. We work with governments, companies, and civil society to build solutions to urgent environmental challenges. (www.wri.org)

The Nature Conservancy(TNC) is a leading conservation organization working around the world to protect ecologically important lands and waters for nature and people. The Conservancy and its more than one million members have protected more than 480,000 sq km of land and engage in more than100 marine conservation projects. The Conservancy is actively working on coral reef conservation in 24 countries, including the Caribbean and the Coral Triangle. (www.nature.org)

WorldFish Center is an international, nonprofit, nongovernmental organization dedicated to reducing poverty and hunger by improving fisheries and aquaculture. Working in partnership with a wide range of agencies and research institutions, WorldFish carries out research to improve small-scale fisheries and aquaculture. Its work on coral reefs includes ReefBase, the global information system on coral reefs. (www.worldfishcenter.org)

International Coral Reef Action Network (ICRAN) is a global network of coral reef science and conservation organizations working together and with local stakeholders to improve the management of coral reef ecosystems. ICRAN facilitates the exchange and replication of good practices in coral reef management throughout the world’s major coral reef regions. (www.icran.org)

United Nations Environment Programme-World Conservation Monitoring Centre (UNEP-WCMC) is an internationally recognized center for the synthesis, analysis, and dissemination of global biodiversity knowledge. UNEP-WCMC provides authoritative, strategic, and timely information on critical marine and coastal habitats for conventions, countries, organizations, and companies to use in the development and implementation of their policies and decisions. (www.unep-wcmc.org)

Global Coral Reef Monitoring Network (GCRMN) is an operational unit of the International Coral Reef Initiative (ICRI) charged with coordinating research and monitoring of coral reefs. The network, with many partners, reports on ecological and socioeconomic monitoring and produces Status of Coral Reefs of the World reports covering more than 80 countries and states. (www.gcrmn.org)

Reefs at Risk in the Indian Ocean

Maggie Barron — Fri, 18 Feb 2011 14:19:57 -0500

More than 65 percent of coral reefs in the Indian Ocean region are at risk from local threats (i.e., coastal development, overfishing/destructive fishing, marine-based pollution, and/or watershed-based pollution), with one-third rated at high or very high risk. Closer examination reveals a sharp focus of threatened areas along continental shores where more than 90 percent of reefs are threatened.

Download hi-res version (JPEG, 2147 x 1715 px, 839 Kb)
View global map of threats to coral reefs

Clean Energy, Corruption, and Case Studies on Electricity Governance

Davida Wood — Thu, 23 Dec 2010 11:35:49 -0500

Developing countries are expecting billions of dollars to fund a clean energy transformation. How can they ensure this money is spent in the public interest?

At a moment in which countries seek billions of dollars of financing to transition to low-carbon economies, there has been little focus on how decisions about these expenditures are actually made.

But with new technologies and new sources of financing emerging as potential drivers of an energy transformation, it is critical to understand the institutional structures and governance practices that shape sector choices.

The Electricity Governance Initiative explored these issues on a panel at 14th International Anti-Corruption Conference in November 2010. Titled “Clean Energy: Conflicts of Interest and Corruption in the Electricity Sector,” the panel presented case-studies of the institutional backdrop for electricity sector planning and procurement. The panel examined how public funds for both conventional and renewable energy may serve vested interests. It also explored ways in which electricity sector institutions in developing countries may be improved to protect public interests in this capital-intensive sector.

Governance challenges persist even as the fuel is changed from conventional to renewable resources.

Case studies from Thailand, South Africa, Indonesia and India demonstrate large governance gaps, and multiple avenues for corruption:

Thailand’s power development planning process is premised on perpetuating gains for vested interests and designed to continue providing perverse incentives to extractive and nuclear industries, though various alternatives exist.
South African anti-corruption agencies are unable to take action even where conflicts of interests are visible in decision-making and seek higher levels of “evidence” of corruption or undue influence.
Indonesia’s government continue to sign private contracts with independent power plants (IPPs) outside of the public domain, committing to buy electricity at higher costs with virtually no public or regulatory oversight.
Clean energy development and deployment in India has shown how information asymmetry, limited regulatory and public oversight and the calculation and rolling out of incentives and subsidies can cloud decision-making in the sector.

The presentations demonstrated how institutional biases and lack of transparency can combine to slow transformation and distort pricing. Even in the “clean energy” sector, lack of transparency underscores the fact that governance challenges persist even as the fuel is changed from conventional to renewable resources.

A common theme in the session was the challenge of identifying and combating corruption, given the technical nature and complexities in the electricity sector, and a call for greater civil society coordination to combat corruption in the sector. Panelists focused on looking at corruption within a larger “good governance” paradigm: the creation of processes aimed at improving transparency to reduce corruption and lead to decisions in the electricity sector that better serve the public interest. The four presenters are partners of the Electricity Governance Initiative (EGI), a global network of civil society organizations dedicated to promoting transparent, accountable, and inclusive decision-making in the Electricity Sector. The World Resources Institute and Prayas Energy Group serve as the Secretariat.

Read these case studies here:

Governance and Power Development Planning in Thailand
Corruption and Procurement in South Africa: A Case-Study from Eskom
Independent Power Plants and Corruption in Indonesia
Clean Energy and Regulation: India’s Challenges of Information Asymmetry and Weak Oversight

Analyzing Environmental Trends in Asia

Dana Krechowicz — Fri, 25 Jun 2010 10:08:42 -0400

How can the financial community better understand the financial impacts of environmental trends?

Climate change and water scarcity will pose serious threats to countries in South and Southeast Asia over the next several decades. These threats, which range from more extreme weather events (like typhoons, floods, and droughts) to more limited water availability, are likely to have significant impacts on the region’s economies and industrial sectors. Gaining a better understanding of how and when environmental risks may impact company performance will help the region’s financial community accurately assess corporate value.

To that end, WRI and HSBC partnered to identify and quantify environmental risks facing key sectors in South and Southeast Asia, culminating in the recent release of three reports on the power, food and beverage, and real estate sectors.

Why is it so difficult to analyze the financial impacts of environmental trends in Southeast Asia? Today WRI releases Analyzing Environmental Trends: Taking the Pulse of Asia’s Financial Community, a working paper that looks at this question and draws on insights gained from the sector reports, as well as feedback from the region’s financial community. The paper frames the key challenges:

A lack of publicly available data relating to both environmental trends (for example, localized water scarcity data) and company-specific exposure to potential environmental risks (for example, the number of corporate facilities in water scarce areas);
Limited contextual analysis –- including examinations of social, economic and political drivers – for framing the complex connections between environmental trends and their financial impacts;
The highly unpredictable nature of environmental trends which limits analysts’ ability to forecast their likelihood and their magnitude.

Lack of Data

The lack of reliable environmental data raises particularly serious concerns in Asia, because this region is predicted to be among the highest impacted by environmental risks such as climate change. There is an urgent need for investors to engage with companies to obtain key data points, such as the specific location of key facilities and the security of a company’s access to key resource inputs such as water. Better information in these areas will help investors fully understand the extent to which environmental risk will impact companies.

Contextual Analysis

Data alone are not sufficient if they are not accompanied by contextual analysis. Contextual analysis entails understanding the extent to which a company or its facilities are: (1) exposed and (2) vulnerable to environmental impacts. A company’s geographical location (or that of its plants/facilities) determines its exposure to physical environmental trends, while the nature of a company’s operations determines its vulnerability to these trends.

To evaluate exposure to environmental trends, the WRI/HSBC research project used geographical information system (GIS) maps. The maps plotted the location of company operations (including facilities and plants) on areas of environmental exposure. In India, for example, 74 GW—over half of existing and planned capacity for major power companies—are located in areas considered to be water scarce or water stressed, which is significant because traditional power plants typically use significant amounts of water.

Thermal Power and Hydropower Plant Locations and Water Stress Level

Modeling Uncertainty

Arguably the most daunting challenge to assessing the financial impacts of environmental trends is the inherent uncertainty in forecasting both the magnitude of environmental risk and the degree of impact that adverse events would have have on companies. This forecasting ability is further complicated by the difficulty in isolating the impacts of environmental trends on company performance.

The WRI/HSBC research project tackled the challenge of uncertainty by initially engaging with environmental experts and companies in the region to establish qualitative connections between environmental risks and financial value. WRI constructed hypothetical but realistic environmental trend scenarios, which HSBC used as a basis to evaluate how companies would be impacted financially using sensitivity analysis. The primary aim of the research was to establish the connections between environmental risks and company value qualitatively, and then prove that they could also be financially material.

What role can the financial community play in improving understanding of environmental trends?

The WRI/HSBC paper suggests actions aimed at improving the quality of environmental data and at enhancing financial analysis methodologies:

1.Engage with companies to publicly disclose relevant environmental data and provide context for interpretation.

Financial analysis requires data (including resource use and dependencies) at the facility (or local) level as well as the company-wide level. Examples of the type of data required include:

Location of facilities
Revenue broken down by product and/or facility

2.Seek out environmental data sources from private data providers, academics, and governments.

The financial community can encourage governments to provide better environmental data at a national level, while working with private data providers to access environmental data at a local level. Examples of specific data that the financial community should seek from governments include:

Resource (e.g. water) availability data at the smallest scale possible
Data on local climate impact predictions

3.Apply methodologies that simulate financial uncertainties to environmental trends.

For analysts looking to take their environmental analysis one step further, WRI used the following methods to cope with uncertainty in analyzing the power sector:

Sensitivity analysis: For plants dependent on freshwater resources, conduct a plant level sensitivity analysis of Internal Rate of Return (IRR) impacts of outages and load losses. This will reveal which companies have the highest financial risk tied to disruptions.
Scenario analysis: Develop scenarios around water availability at the river basin level for each plant based on future projections (if available) or key risk factors present at the local level. When combined with the sensitivity analysis above, this provides insight into which plants are most at risk from water constraints and the potential magnitude of financial impact.
Management quality analysis: Assess and rank companies based on their strategies for mitigating water risk. (e.g. the extent of their water management strategies; their utilization of advanced technologies, such as air cooling, to reduce water dependency). Use this information to appropriately adjust conclusions from the sensitivity and scenarios analyses detailed above.

The availability and quality of environmental data in South and Southeast Asia remain limited, despite broad consensus that environmental trends are likely to have negative impacts across the region. This situation makes the need for better disclosure and environmental analysis all the more pressing and illustrates the clear role that Asia’s financial community can play in addressing this important gap.

The Government of Japan, through the International Finance Corporation (IFC), generously provided funding for this research.

Analyzing Environmental Trends: Taking the Pulse of Asia’s Financial Community

Maggie Barron — Thu, 24 Jun 2010 09:53:32 -0400

Executive Summary

In 2008, a unique research collaboration between The World Resources Institute (WRI) — a leading environmental think tank —and HSBC — a major global financial institution — was formed to better understand the financial materiality of environmental trends affecting selected sectors in Asia. This research collaboration produced in-depth, peer-reviewed research on the impacts of climate change and water scarcity in South and Southeast Asia’s power, food and beverage, and real estate sectors.

This working paper draws on insights gained from the research as well as feedback from the region’s financial community, to frame the key challenges that analyze the financial impacts of emerging environmental trends in the region.

These challenges can be summarized as:

A lack of publicly available data relating to both environmental trends (for example, localized water scarcity data) and company-specific exposure to potential environmental risks (for example, the number of corporate facilities in water scarce areas);
Limited contextual analysis for framing the complex connections between environmental trends and their financial impacts;
The highly unpredictable nature of environmental trends which limits the ability to forecast their likelihood and their magnitude.

While these challenges are not specific to South and Southeast Asia, this report provides examples of analysis that incorporates environmental trends in the region and suggests practical steps to enhance and expand how Asian (and other emerging) financial markets are responding to emerging environmental issues.

Surveying Risk, Building Opportunity: Financial Impacts of Energy, Water and Climate Risks on Real Estate in Asia

Maggie Barron — Fri, 16 Apr 2010 13:24:59 -0400

Energy insecurity, water scarcity, and climate change pose growing risks for the real estate sector in South and Southeast Asia, yet the connections between these trends and financial impacts are not well understood by analysts, investors, companies, and governments in the region. This report presents a framework to assess risks associated with these trends, and also discusses financial opportunities in the region’s growing green building market. The analysis considers current and planned commercial office buildings in India, Indonesia, Malaysia, Philippines, Thailand, and Vietnam, with a particular focus on the Indian market given the large size of its real estate market and data availability. The report’s lessons and the risk framework may also be applied and adapted to other countries and building types. Although other resource scarcity, demographic and/or environmental trends may be relevant to the region’s buildings (for example, air pollution, waste, or ecosystem degradation), the report’s scope extends only to specific aspects of energy insecurity, water scarcity, and climate change as defined in this report.

Key Points

Emerging energy insecurity, water scarcity, and climate change trends in South and Southeast Asia will affect the risk and return associated with investments in (1) commercial building projects and (2) companies involved in commercial real estate development and investing.
The focus countries’ limited energy and water infrastructure; rapidly growing demand for energy and water resources; and physical exposure and vulnerability to climate change impacts, all increase the likelihood and magnitude of financial impacts.
Green building investments can minimize energy and water-related risks while achieving net positive returns in as few as three years.

Over Heating: Financial Risks from Water Constraints on Power Generation in Asia

Tim Herzog — Fri, 16 Apr 2010 13:23:38 -0400

Key Findings and Context

Water-related risks are receiving more attention than in the past, yet the connection to power sector development is not well understood by investors, governments, and companies in South and Southeast Asia. This report presents a framework for investors and analysts to assess the risk of impacts from water-related issues, including growing water scarcity and declining water quality, on thermal and hydroelectric power generation plants. While this analysis focuses on publicly listed power generation companies in India, Malaysia, Philippines, Thailand, and Vietnam, the risks outlined may apply to listed power generation companies operating in other water scarce regions.

Emerging Asia is projected to have the fastest growth rate of power consumption in the world.

The drivers behind this power appetite – economic and population growth – are also increasing demands on limited freshwater resources.
The power sector requires a steady supply of water for cooling and generation to maintain loads and avoid disruptions.

The availability and quality of freshwater is rapidly declining in many parts of South and Southeast Asia due to demographic pressures and climate change.

India in particular faces critical water shortages in the next decade.
Malaysia, Thailand, the Philippines, and Vietnam are expected to face localized water pollution and shortages, with climatic patterns shifting towards longer dry seasons with more concentrated rainfall periods.

Investors are taking on more water risk.

The power sector is being liberalized in many countries in the region to attract the investment necessary to meet economic goals, with higher risk-reward propositions for investors.
Deregulated power markets may offer little or no protection to shareholders in the event of an outage or load loss resulting in lost revenues or increased costs (if stipulated by operating license).
New thermal and hydro power development places long-term bets on water availability – yet future water supplies are often uncertain and potentially oversubscribed in the most electric power hungry and water scarce regions.

Technology will play a key role in mitigating water risk yet at a price and efficiency tradeoff.

Advanced cooling systems for thermal power such as dry cooling can reduce or eliminate freshwater dependency yet increase carbon emissions per unit power output through efficiency losses.
Likewise there are water penalties for carbon dioxide emission reducing technologies such as carbon capture and storage.
These competing priorities make it difficult for investors and companies to anticipate the impact of future climate change and water policies on investments.

Water risk has been obscured to date by regulatory protections.

Examples of water-related load losses or outages have occurred throughout South and Southeast Asia yet the financial impact has been limited due in part to heavy governmental support that minimizes shareholder risks.
Shareholder protections will become more costly to sustain and may drive regulatory change as freshwater scarcity increases over the longer term.

74 GW – over half of existing and planned capacity for major power companies – is located in areas that are considered to be water scarce or stressed.

WRI mapped water scarcity data with plant locations for the largest publicly listed power generation companies in the region.

In India, 79% of new capacity will be built in areas that are already water scarce or stressed.

NTPC, Tata Power, and Reliance Infrastructure’s (including Reliance Power’s) new capacity is increasingly located in water scarce or stressed areas.
Water scarcity is expected to intensify in the future as the impacts of climate change and demographic pressures decrease renewable water supplies.

Three New Reports Examine Financial Impacts of Environmental Risks in Southeast Asia

Dana Krechowicz — Fri, 16 Apr 2010 13:03:25 -0400

Environmental risks in the power, food and beverage, and real estate sectors can pose new challenges for investors.

What are companies and investors doing about the environmental challenges that will affect their bottom lines? At WRI, we help the financial sector understand environmental risk, be it from climate change, water scarcity, or energy insecurity. We also help companies build resilience in their supply chains and help investors pick the forward-thinking companies that will be good environmental bets in the future.

To that end, the World Resources Institute and HSBC’s Climate Change Centre of Excellence have released new research analyzing the environmental risks facing the food & beverage, power and building sectors in India, Indonesia, Thailand, Malaysia, Vietnam and the Philippines.

The reports show that climate change, energy insecurity and water scarcity are strategic risks for investors in the region, and those companies that manage these risks stand to differentiate themselves from their peers in the future.

Water shortages put the Asian power sector at risk:

In India, for example, 74 GW – over half of existing and planned capacity for major power companies – is located in areas considered to be water scarce or water stressed.
Also in India, 79% of new power capacity will be built in areas that are already water scare or stressed.
Water shortages can cause costly delays and decreases in power production, lowering the rate of return on investment.

Asian food and beverage sector is vulnerable to climate and water risks:

The industry’s dependence on agriculture, aquaculture and water resources for business operations makes it particularly susceptible in a region where climate change is projected to severely intensify water scarcity problems.
Edible oils, starches, and sugar sub-sectors will be most vulnerable to increasing agricultural prices, while aquaculture, poultry, and dairy will be vulnerable to disease and contamination.
As part of the study, HSBC’s analysis on an Indian sugar company shows that a sugarcane price increase of 1 percent can lead to a decline in profit of up to 10 percent.

The commercial real estate sector in South Asia benefits from going green:

As electricity and water prices are expected to increase, “green” building retrofits or new construction can protect the Asian real estate sector from increasing environmental risks emerging in the region.
Most of the energy used by commercial buildings in the region goes toward air conditioning and lighting. In India, for example, lighting accounts for 60 percent of the energy used in commercial buildings while 32 percent goes toward air conditioning.
According to a case study, a typical commercial building (300,000 square feet) in Mumbai, a 1 percent increase in electricity costs could increase annual operating costs by approximately Rs 2.8 million, or around USD 60,000.

About the Reports:

Weeding Risk: Financial Impacts of Climate Change and Water Scarcity on Asia’s Food and Beverage Sector is the first report in the three-part series. It looks at seven food and beverage sub-sectors in the region. Findings suggest that the edible oils, starches, and sugar sub-sectors will be the most vulnerable to increasing environmental trends, such as climate change and water scarcity, in the region.

Over Heating: Financial Risks from Water Constraints on Power Generation, analyzes water-related risks facing thermal and hydroelectric power plants in India, Malaysia, the Philippines, Thailand and Vietnam. The analysis found that water shortages pose the highest risk for power generation companies in India compared to the other countries.

Surveying Risk, Building Opportunity: Financial Impacts of Energy Insecurity, Water Scarcity, and Climate Change on Asia’s Commercial Real Estate Sector, assesses the commercial building sector in the region and the financial impacts it could face from energy insecurity, water scarcity and climate change. The report finds that green building investments can alleviate these risks and achieve a positive return for buildings owners in a few years.

NEWS RELEASE: Water Shortages Put Asian Power Sector at Risk

Jessica Forres — Thu, 15 Apr 2010 16:49:11 -0400

More than half of existing and planned power plants in South and Southeast Asia are located in areas currently considered water scarce or stressed, according to findings in a report released today by the World Resources Institute (WRI) and HSBC’s Climate Change Centre of Excellence.

The new report, Over Heating: Financial Risks from Water Constraints on Power Generation, analyzes water-related risks facing thermal and hydroelectric power plants in India, Malaysia, the Philippines, Thailand and Vietnam. These plants require large amounts of water for cooling and generation.

WRI mapped the water stress level across the region and the location of more than 150 existing and planned facilities of the largest power-generation companies in the region. The analysis found that water shortages pose the highest risk for power generation companies in India.

“Water-related risks are hard to quantify, yet they present a growing risk to power generation,” said Piet Klop, acting director of WRI’s Markets and Enterprise Program. “The next step is to take our analysis to specific companies and their exposure and response to those risks. On the upside, investors have investment opportunities that can come from better understanding water-related risks.”

In India, approximately 62 percent of existing and 79 percent of planned thermal and hydroelectric power plants of the three largest power generation companies (NTPC, Tata Power, and Reliance Infrastructure) are located in water scarce or stressed areas. The country’s water demand is expected to outgrow supply by 50 percent by 2030 and estimates by the World Bank indicate that all available water supplies will be exhausted by 2050.

“The power sector investors and analysts are making long-term bets on water that, in the future, might no longer be reliable,” said Amanda Sauer, a senior associate at WRI. “They need to start assessing their exposure to water-related risks when considering long-term investment strategies.”

The report’s findings suggest that project delays due to water-permitting problems and general shortages may be costly. As part of the study, HSBC’s analysts found that a 12-month delay in commercial operation could lower the rate of return on investment by 1.5 percent. Furthermore, each 5 percent drop in power production due to water shortages could result in nearly a 0.75 percent drop in the project’s rate of return.

“The projected expansion of power generation - whether coal, hydro or gas – is exposed to growing water stress,” said Nick Robins, head of the Climate Change Centre of Excellence (C3E) at HSBC.

Roshan Padamadan, a HSBC analyst at the Centre said, “Investors need to understand how companies are managing these risks, including the specific steps to optimize water use at the plant level.”

Over heating is the second report in a three-part series. The first report, Weeding Risk, looks at climate change and water scarcity impacts on the food and beverage sector in India, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam. The third report, Surveying Risk, Building Opportunity, assesses environmental risks to commercial real estate in the region.

NEWS RELEASE: Asian Food and Beverage Sector Vulnerable to Climate and Water Risks

Jessica Forres — Thu, 15 Apr 2010 16:35:19 -0400

Environmental trends could have significant financial repercussions for the $40 billion food and beverage industry in South and Southeast Asia, according to a report released today by the World Resources Institute (WRI) and HSBC’s Climate Change Centre of Excellence.

“The food and beverage industry is particularly vulnerable to climate change and water scarcity in Asia. The region is already struggling with increased water demand because of population and economic growth,” said Dana Krechowicz, a WRI associate and co-author of the report.

The industry’s dependence on agriculture, aquaculture and water resources for business operations makes it particularly susceptible in a region where climate change is projected to severely intensify water scarcity problems.

WRI’s report, Weeding Risk, examines the impacts these growing trends will have on seven economically important food and beverage sub-sectors in six countries – India, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam.

The report’s findings suggest that the edible oils, starches, and sugar sub-sectors will be most vulnerable to increasing agricultural prices, while aquaculture, poultry, and dairy will be vulnerable to disease and contamination. As part of the study, HSBC’s analysis on an Indian sugar company shows that a sugarcane price increase of 1 percent can lead to a decline in profit of up to 10 percent.

The risks identified in the report are already affecting some food and beverage sectors. Drought during the monsoon season in India caused sugar prices to reach a 28-year high in 2009. This is particularly troubling considering experts estimate that by 2020, the demand for water in India will exceed all its sources of supply.

“Water stress is set to have a growing role in shaping the sector,” said Nick Robins, head of the Climate Change Centre of Excellence at HSBC. Roshan Padamadan, a HSBC analyst at the Centre stated, “The strategic choices made by a company along its value chain can mitigate these risks, making it important for investors to understand its sourcing, inventory, and operational performance.”

Weeding Risk is the first report in a three-part series. The second report, Over Heating, analyzes the power sector in South and Southeast Asia. Surveying Risk, Building Opportunity, assesses the environmental risks to commercial real estate in the region.